Wednesday, April 14, 2021
Under the current administration and "composition of Congress," changes to estate and gift taxes are likely. Senator Bernie Sanders recently proposed tax reform legislation that would "make major changes to the current estate and gift tax rules."
If the legislation were adopted, there would be a reduction to the estate tax lifetime exemption. Under the proposed legislation, the current exemption ($11.7 million per taxpayer) would drop to $3.5 million, which would not be adjusted for inflation. Further, the gift tax lifetime exemption would be reduced to $1 million.
Also, "gifts to irrevocable trusts and certain family entities, and gifts of assets subject to prohibitions on sale and those that cannot immediately be liquidated will be subject to a limit of $30,000 per donor annually."
The rate of the estate tax which would change to a progressive rate and increase from 40 percent to 45 percent for taxable estates between $3.5 million and $10 million, "50 percent for estates between $10 million and $50 million, 55 percent for estates between $50 million and $1 billion, and 65 percent for estates over $1 billion."
If adopted, the new legislation would affect the usefulness of grantor trusts, GRATs, and family entity discounts.
The proposed legislation would also greatly affect trusts that are considered to be owned by a grantor for income tax purposes, which would be subject to federal estate tax upon the death of the grantor. Further, distributions from grantor trusts would be considered gifts from the grantor.
Assuming that the proposed legislation, which would take effect in January 2022, would not be retroactive, taxpayers should consider taking advantage of the current laws so that they do not miss out on them if the proposal passes.
See Carol A. Sobczak, Client Alert: Are Changes Afoot for Estate and Gift Taxes?, Shumaker, April 9, 2021.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.